In this course, you will explore how to use accounting to allocate resources and incentivize manager and employee behaviors in using these resources. You will also learn how financial and non-financial accounting information facilitates strategic performance measurement and how to integrate this information to continuously improve strategy.
Upon successful completion of this course, you will be able to:
• Understand the role of managerial accounting information in common business decisions
• Differentiate relevant and irrelevant information
• Avoid common pitfalls in business decisions
• Prepare a master budget and its key components
• Describe the iterative and interrelated nature of budgeting
• Evaluate capital investments via a variety of measures
• Understand how upper management uses variance analysis
• Calculate, interpret, and investigate variances
• Understand decentralization and its advantages and disadvantages
• Compute and interpret financial performance measures
• Communicate the role of non-financial measures and strategic performance measurement systems
• Identify issues associated with performance measurement and incentives
• Understand the nature and role of subjective performance evaluation
This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

SR

Great course, I does complement the Managerial Accounting course I took before. A lot of tools to apply in the work place. The videos and the examples are wonderful for the learning pourpose.

BB

Mar 01, 2019

Filled StarFilled StarFilled StarFilled StarFilled Star

Although seems to be easy going it is actually quote complex subject but professor made it simple for understanding - great work U of I !!

From the lesson

Standard Costing and Variance Analysis

After establishing goals, setting targets, and the budget, upper management uses variance analysis to compare, assess, and investigate differences between actual and expected performance. In this module, you will learn how upper management uses variance analysis to motivate and monitor managers and employees, how to perform variance analysis on any aspect of the organization, and ultimately understand the power of this important tool for planning and control.

Taught By

Gary Hecht, Ph.D.

Associate Professor of Accountancy

Transcript

[ Music ] >> Now that we've calculated direct material variances, let's move on to the next category of variable costs, and calculate direct labor variances. We'll use the same example as what we started with for direct materials. So, one take away from these calculations will be that it is perfectly analogous to the calculations that we did for direct materials. And that will demonstrate the point that all variable cost variances can be calculated in the same manner. So using the direct, but labor information, we can start in the same exact place as we did with direct materials, and that is with the static budget. Per the standard information that was provided in the given information, we're supposed to spend on average per hour of labor, $8. That's $8 per direct labor hour. Our input on a standard basis is one direct labor hour per unit of output. And of course we had originally planned to produce 4,750 units of output. You'll notice in the calculations in for direct materials that we have the same number in that third component place, the 4,750 units of output. That makes sense because for all variances, that are variable cost, we'll be thinking about outputs, and output or production would be the same, regardless whether or not we we're talking about materials, labor, or variable overhead. But ultimately for direct labor costs, the $8 per direct labor hour, multiplied one, by one direct labor hour per output multiplied by the 4,750 units of output, yields a total static budget of $38,000. Now thinking about our flexible budget, and that is how much our direct labor costs should have been, given what we actually produced, instead of planned to produce, all components are the same, in this column as they are in the static budget, with the exception of the output. So we have our $8, our one direct labor hour per output, and instead of 4,750 planned or expected units, we actually produced 4,250 units of output. Multiplying the eight times the one direct labor hour per output, by the number of units that we actually produced 4,250, yields 34,000. Moving to the standard price column, we're going to keep the price the same, we're going to keep the output, which has been convert moving from right to left to the actual output the same, but we're going to think about how many u-- hours, direct labor hours, we actually used to produce what we did. And thinking about that on a per unit basis, means that, the given information said 4,150 direct labor hours were used to produce the 4,250 units. So on average it's a little less than one direct labor hour per output. Multiplying all those three components together, yields a total dollar amount of $33,200. And then our actual amount was just provided to us, and that was given as $34,445. Now one thing I didn't do for direct materials is to complete the different components of the actual column and that could certainly be done given the way that the information was presented. The $34,445 is a-- is calculated using all actual information, and we are given that in terms of outputs, in terms of units of input the direct labor hours in this case, per unit of output, and then we can back into this unknown here. We can divide 34,445 by the other two components, and ultimately we get that to be about $8.30 per hour. So calculating our variances, our actual comparison to the standard price comparison that yields our spending variance for direct labor for this case, that variance is 1,245. The difference between the standard price column and flexible price column is referred to the efficiency variance for direct labor, and that difference is 800. And the difference between the flexible budget and the static budget is 4,000. Again, we can go through the exercise of classifying these variances as favorable or unfavorable. And using the same methodology and logic that we did for direct materials, we can apply that here. So the static budget, standard piece of information, standard piece of information, standard piece of information, compared to the flexible budget, standard, standard, actual. Our flexible number is our more actual piece of information, compared to the static budget, that cost is lower than what we had planned in a perfectly standardized world. So the cost being lower means that all else equal, our net income will be higher than we had expected. So this variance is favorable. Using the same logic in looking at the efficiency variance, we would classify that as favorable as well, the more actual piece of information, the cost is lower than the more standard piece of information, and given that our expected net income, or our actual net income, would be higher than what we had expected, again a favorable variance. And the opposite logic applies, or the, the same logic applies, but the opposite outcome for the spending variance, that variance is actually unfavorable. Now I can look at these individual components and talk about why they're favorable or unfavorable to help with the interpretation. In terms of the efficiency measure, we used less than one hour of direct labor per unit of output. That means on average costs would be lower, all else equal. So that's going to be a lower cost, a higher than planned net income, a favorable variance. When I look at the price, what I calculated as $8.30 being the actual price that we spent per direct labor hour, we spend more than we had expected. That means that relative to what we expected or standard, or our standard, we, we would have higher costs. Higher costs, all ees-- , all all, all else equal would yield lower net income, so therefore it's an unfavorable variance.

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